Why Canada’s Immigrant Investor Program is a Failure

Canada has received just six applications for its pilot immigration program for millionaires, far fewer than for its immigrant investor class program that was scrapped last year amid government claims it was not achieving program objectives.

The federal government launched its new Immigrant Investor Venture Capital (IIVC) Pilot Program which aims to raise $120 million from 60 eligible ultra-high net worth investors. The funds are intended to be invested in Canada-based start-ups with high growth potential. Ironically, the new program, unofficially confirms Canada’s definitive retreat from the global residence-through-investment industry, which it created in 1986 with the Quebec government.

Under the new Immigrant Investor Venture Capital (IIVC) Pilot program, approved applicants with a personal net worth of $10 Million, must invest at least $2 million into a government approved VC fund for a minimum period of 15 years, with no guarantee for return of capital. Applicants must demonstrate their net worth threshold was obtained from lawful, for profit-making management, business or investment activities providing capital or equity gains. Inheritances or assets from principle residential real estate are excluded.

Additional requirements include mandatory language testing and proof of completed Canadian post-secondary education of at least one year, or proof of a foreign educational equivalent. Education assessment can be exempted for applicants with a personal net worth of $50 million. A maximum of 500 applications will be accepted during the current subscription period which ends December 30, 2015 and which has been twice extended.

The government then plans to invite up to 60 candidates to apply for Canadian permanent residence. Applicants will be charged a modest processing fee of $1,050. Selected applicants must also submit a comprehensive due diligence report prepared by a designated service provider to ensure the source of wealth is generated from lawful business or investment activities. The fund will be managed by BDC Capital, the investment arm of the Federal Business Development Bank of Canada and by government selected fund managers.

Despite this launch, the Harper government’s new program is a charade. It has a dubious history in the immigrant investor industry. In February 2014, after a 2-year pause on new applications, it terminated the previous Immigrant Investor Program geared to entry level millionaires, cancelling more than 15,000 unprocessed applications mostly from Chinese nationals. Many had been waiting up to 6 years to invest $800,000 per applicant. To meet new program requirements, the delays to complete mandatory language testing, education equivalence assessment as well as to secure the comprehensive financial documentation will take far longer than the short solicitation window.

By imposing mandatory language testing, the only immigrant investor program in the world to do so, Canada would not even be a consideration for the vast majority of the world’s ultra high net worth individuals who reside in China, accounting for 80% of the market. This factor alone renders Canada’s new program a non-player in the residence by investment industry, which it has dominated for almost 30 years.

The leading countries offering ultra-high net worth permanent residence programs include the UK, Malta and Australia. Each offer far more attractive terms and conditions that include much shorter investment terms, substantially lower net worth criteria, open ended subscription periods and no language proficiency requirements. Comparatively, the UK requires an investment of $4 million CAD for five years which can include government bonds with interest paid to the investor. The USA, which became the default leader in the industry once Canada terminated its highly popular program in 2014, offers its EB-5 conditional residence visa which requires an investment of US $1 million or US $500,000 in an approved Regional Center and no minimum net worth requirement.

The immigrant investor industry has proven to be a highly lucrative business bringing billions of dollars to governments including Canada for infrastructure investment. Canada had a stronghold on the mid level investor market largely dominated by China and the Middle East. The province of Quebec continues to successfully promote its own immigrant investor program of $800,000 which will re-open on August 31, 2015, to 1750 applicants. Each applicant must pay a processing fee of $15,000. These fees alone will fund a major part of the Quebec Government’s entire annual immigration program.

The previous Federal Immigrant Investor program, a 5-year interest free passive investment, was established in response to the demand for investment capital by Canadian businesses. During the 1990’s Canada received a much greater benefit from the investment capital attributed to higher interest rate environments.

However even at the current low rates, Canada would remain the most popular destination for the mid-level immigrant investor market, allowing for tremendous revenue potential to governments and the private sector.

Under a revised passive immigrant investor program at $2 million, with suitable legislation and a centralized processing centre, Canada could easily subscribe and efficiently process 1000 applications each year and charge a subscription fee of $25,000 per applicant. Aside from the obvious massive direct monetary benefits, are the indirect economic “consumption” benefits that objective studies have assessed at $700,000 per family during a 5-year term, which the government dismisses. Most importantly, the children of immigrant investors will, in many instances, provide invaluable links to the international business community, which is an immeasurable benefit from effective immigration policy.

There are currently more than 25 global residence and citizenship based investment programs. The industry will experience significant growth in the years ahead. Perhaps there are other reasons why this government chooses to close Canada’s doors to a largely Asian and Middle Eastern immigrant investor clientele. In the current rapidly changing economic environment, Canada’s business community should demand an immediate, objective reconsideration.